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Distressed real estate is a the diamond in the rough that all RE investors are seeking. HOWEVER, with out doing your research you may lose far more then you will gain.

A step by step approach is best in order to make a solid decision before commiting to the investment. Make a check list and use it. And dont forget to add these to your list.

Please Note: The following elements discussed are not listed in any particular order. Nor do they all hold the same value in relation to each other, but they must ALL be considered in their entirety. The property should meet at least one of the criteria, and should have no unjustifiable issues in any one single area.

I give you…THE LIST:

WHY THE ASKING PRICE

Most investors focus on price first.

So the goal is to buy for cheaper then the current market value and sell within market value or above. so how come the seller is offering such a GREAT price. Is it to settle debt??? Is it due to divorce? Death in the family?

Are there problems with the property that will cost a small fortune to fix? Out dated plumbing??? Poor electircal wiring? in older houses these problems are VERY common. Dont forget to consider holding costs.

My personal opinion is that the holding cost are the number one profit killer. YOU HAVE TO BUDGET THEM IN. Commissions to agents, mortgage, closing costs taxes, all repairs…and dont forget the gas and electric.

Poor determination of true market value is another obstacle to the successful deal. Market value is essentially a subjective exercise where the true value is not known until someone buys the property.

Check out other property near the one your looking at investing in. what prices are they pulling in? Are they the same size? Lot size close to the one your looking at? Same style of structure?

TAKE ADVANTAGE OF TERMS AND CONDITIONS

Price and location are important this is true. but dont forget about the financing.

If you have the means you can pay full price but jocky for a FAR lower intrest rate or a smaller down payment. Over time your cash flow could be in the black faster due to the terms you set up.

RESEARCH THE LOCAL MARKET

Good investors get in the habit of understanding the lay of the land. What is the local community like? where are the closest fire/police/EMS services? How good are the local schools? Dont rule out these questions. Make sure to look in to the last houses sold in the area as well as any selling trends you can find.

As the man said…it is all about location.

If your shooting for a long term tenet or residence then location is the second most critical thing to look at…however if you have a chance to turn a good profit for a ugly house in a less then 4 star area…that profit might out shine a nice little bungalow on the beach.

FIXER UPPERS AND FORECLOSURES

In the case of a fix andflip and some times a foreclosure. It is the job of the investor to facotr in the repair costs. A keen eye can save you lots of money in a very short time. (Not to mention a good understanding of home repair work)

Fixer properties are a treasure trove to a savy investor. If you have a good eye for details and can spot maintance problems you can make a nice return on your investment. Things like a bad roof, poor plumbing or a bad foundation can be very costly to repair. Once you have a idea of what your looking at for repair cost, do your self a favor and add a little buffer say 5%…just to be safe.

Know what it is ZONED for.

Make sure you research the zoning for the property BEFORE you buy it. If you are thiking of adding a second floor or a granny flat…is the zoning available? Make sure you know before you commit to doing anything that will add or change the SQ footage of the property.

These are often bargains because the price is based on current use. So the single unit residential is priced low while the double unit duplex could be sold higher or rented out. Harder to find as developers stay more aware of zoning allowances these days.

Watch out for “Owner conversions” where owners, aware of the zoning ordinance, have made changes without the oversight of the local building authority. Garages being converted to second units on a duplex lot are common examples.

Tags: Investing